One of the biggest value traps I’ve seen this century (other than British banks) is European telecom stocks. Since the 1990s dotcom bubble burst in March 2000, the telecoms sector has been one big disappointment. And I include BT Group shares (LSE: BT.A) and Vodafone Group (LSE: VOD) in this graveyard for investors’ money.
BT versus Vodafone
For the record, I can’t imagine the share prices of BT and Vodafone ever getting back to the incredible highs they reached early this millennium. Indeed, at one point way back then, Vodafone was the largest listed company in Europe. Today, it and BT are shadows of their former selves.
To illustrate my point, below are the price performances of BT shares and Vodafone stock over six different time periods:
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| Company | BT | Vodafone |
| One day | -0.1% | -0.4% |
| Five days | +1.4% | +0.8% |
| One month | +4.2% | +9.4% |
| Six months | -3.0% | -11.3% |
| One year | -22.3% | -22.1% |
| Five years | -41.4% | -51.9% |
What immediately jumps out at me from this table is how similarly both stocks have performed, both in the short and longer term. In particular, both shares have lost more than a fifth of their value in the past 12 months. In addition, BT shares are down more than two-fifths in the past half-decade, while Vodafone stock has lost more than half of its value.
My next table shows where both shares are trading within their 52-week ranges:
| Company | BT | Vodafone |
| 52-week high | 196.6p | 134.1p |
| Current price | 140.3p | 99.67p |
| 52-week low | 110.55p | 83.24p |
This second table shows that both BT and Vodafone shares have traded higher and lower over the past year. Yet both are well short of their 2022-23 highs.
Would I buy BT shares or Vodafone stock right now?
As a value/dividend/income investor, I’m drawn to shares trading at low valuations that offer market-beating dividend yields. And it seems, on the surface, that both stocks might meet my bill. Here are their basic share fundamentals, based on their current share prices shown above:
| Company | BT | Vodafone |
| Market value | £13.9bn | £27.2bn |
| Price/earnings ratio | 8.2 | 15.4 |
| Earnings yield | 12.3% | 6.5% |
| Dividend yield | 5.5% | 7.8% |
| Dividend cover | 2.2 | 0.8 |
My third (and final) table shows that Vodafone’s market value is almost exactly twice that of BT. However, it’s important to note that both companies have huge liabilities on their balance sheets. For example, BT has its massive legacy defined-benefit pension scheme, while Vodafone carries a huge debt pile on its books.
But when I look at each company’s earnings multiple, BT looks much cheaper than Vodafone. Its shares trade on a price-to-earnings ratio almost half that of Vodafone. In other words, the market places a much higher rating on the latter’s earnings.
What also stands out to me is both firms’ generous dividend yields. BT offers a cash yield of 5.5% a year, covered 2.2 times by trailing earnings. Meanwhile, Vodafone’s higher yearly yield of 7.8% is covered only four-fifths by its earnings. To me, this indicates that Vodafone is far more likely to cut these future cash payouts than BT.
For the record, my wife bought Vodafone shares as they slumped in December. Right now, I feel no need to add to this initial holding. Then again, BT shares look too cheap to me, so I will add them to my watchlist of buys for when the next tax year starts on 6 April.
